Marks & Spencer’s share price has been hit after a report by analyst Credit Suisse said that the company needed a strategy overhaul.
Shares dropped 3.9% to 250.75p this morning as Credit Suisse said that M&S’ strategies needed “to change in a fundamental way” if the company was going to have any medium-term prospect of growing its sales and profit base.
The 108-page report said that two thirds of M&S customers were over 55, with only 30% in the core 35 to 55 year-old bracket being targeted by M&S chairman Sir Stuart Rose.
“No business can have a long term future with this type of demographic profile in our view. Young customers are needed to replace the older customers over time and there is no evidence this is being achieved.”
The Credit Suisse report said: “No business can have a long term future with this type of demographic profile in our view. Young customers are needed to replace the older customers over time and there is no evidence this is being achieved.”
M&S was overvalued as the necessary change of strategy would depress profits for longer than the market isexpecting, according to Credit Suisse.
Credit Suisse claimed that out of the last nine years, M&S’s general merchandise like-for-like sales have underperformed the total UK clothing growth for seven years, and by more than 10 percentage points in three of those years.
The report criticised M&S for compensating for underperforming sales by increasing gross margin, and said that current management have taken a short term view, overspending on refurbishments and store expansions, and relied heavily on suppliers to finance recovery.
M&S needs to attract younger customers, possibly creating a younger retail format in smaller store, or buying a small fashion chain, the report concluded, while buying and logistics also needs to be overhauled.
Credit Suisse forecasted profit-before-tax for 2009/10 of £328m, around 30% below consensus.